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Preventing Ebola? These 3 Healthcare Stocks Are Working On It

Halyard Health, Cantel Medical, and Stericycle offer infection control products that should see demand growth for years to come.

A number of companies are working on vaccines that could help cure Ebola patients, but other companies that provide behind-the-scenes products and services might be better investments.

Companies including Halyard Health(NYSE:HYH), Cantel Medical(NYSE:CMD), and Stericycle (NASDAQ:SRCL) might see demand for their products and services increase because of Ebola, but all three also have well-established and profitable business that could reward investors for years after Ebola worries have ended. So let's learn more about them.

Preventing infectionU.S. hospitals might have been behind the curve on preparing for Ebola, but they won't be for long. As healthcare providers get better at sticking to new, stricter guidelines associated with caring for patients with infectious disease, healthcare workers will increasingly usedisposable protective gear like the gowns, goggles, and gloves made by Halyard Health.

Halyward Health was recently spun off from consumer goods giant Kimberly Clark(NYSE:KMB), but it's far from an upstart. The company sells more than $1.6 billion worth of these and other medical products every year.

Any increase in demand for the company's protective gear tied to Ebola should have a profit-friendly impact on Halyard Health's bottom line, especially since the company restructured ahead of its spin-off to cut costs. A leaner operation and an addressable market that is worth $7 billion annually and growing should enable Halyard to deliver sales and earnings growth for years to come.

Disinfecting healthcare facilitiesUsing proper protective gear is the first step to containing infection, but when infection occurs, hospitals will rely in part on disinfectants and sterilizers sold by Cantel Medical.

Cantel sells products including reprocessing systems for endoscopies, water purification systems for dialysis, and disposable infection control products for healthcare settings like dentist offices and hospitals. Those products are sold through Cantel's Crosstex, PDI, and Medivators business segments.

Demand for Cantel's products is likely growing, as the company's Crosstex unit announced in October that it was producing its Secure Fit face masks at maximum capacity. Hospitals are also likely stocking up on the company's Sani-Cloth and Rapicide disinfectants, too. In October, both PDI and Medivators confirmed that those products eliminate higher potency nonenveloped viruses like Ebola. Cantel might also see demand growth for its Revox brand sterilizers, which can be used to disinfect nondisposable healthcare devices and equipment.

But while Cantel is positioned for a short-term pop in demand as hospitals bulk up their preparedness, the company is far from a short-term bet. Sales have grown by a compounded 12% annually since 2007, and since demand for face masks, disinfectants, and sterilizers is likely to remain fairly inelastic through the economy's inevitable pops and drops, Cantel's ability to reward investors could stretch well beyond this year.

Source: Stericycle.

Destroying medical wasteOnce infection is contained and treated, healthcare providers need to dispose of contaminated hazardous medical waste. That waste can't be taken to local landfills; instead, it has to be disposed of following strict regulations.

As a result, many healthcare providers turn to Stericycle to dispose of everything from contaminated bedding to used needles.

Since more people will require more care as the U.S. population ages, demand for Stericycle's services is climbing. During the third quarter, the company's sales grew 24.9% year over year to $667.9 million. That brought Stericycle's sales through the first nine months of 2014 to $1.88 billion. Importantly, much of that revenue growth is flowing to the bottom line, too: Stericycle's third-quarter earnings grew 12.4% to $1.08 per share.

Those are respectable numbers, but there appears to be plenty of growth opportunity ahead. Stericycle estimates that its market share totals just 16%, and that suggests it can acquire or take business from plenty of smaller competitors long after this Ebola outbreak in Africa ends.

Fool-worthy thoughtsThe current Ebola outbreak is a wake-up call to healthcare providers to double down on their use of products and services offered by companies like Stericycle, Cantel Medical, and Halyard Health.

Healthcare providers are always battling infection, and following prevention guidelines more strictly should provide plenty of sustainable tailwinds for growth for these three companies years after Ebola risks disappear. If so, then these companies might prove to be solid investments for the long haul, too.

Todd Campbell is long Halyard Health. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends Kimberly Clark and Stericycle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Author

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.
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